Before addressing the central issues in your question, let us define charge off.
Charge Off
Charge-off (sometimes called write-off) is an accounting term used by creditors when they move a delinquent account from its accounts receivable books to its bad debt ledger. This usually occurs between 180 and 240 days from the date of the last payment. The fact an account is charged-off does not mean the debt may not be collected later. The charge-off date also does not correspond to the statute of limitations on collecting a debt, or the date that an entry on a credit record must be removed. All three dates or deadlines are independent of each other and have different meanings. I explain more about the ramifications of a second mortgage in charge-off status in just a moment.
A charged-off account does not mean:
- The debt is canceled
- The debt is forgiven
- The creditor forfeits a right to collect the debt
The creditor may move a charged-off account to its own internal collections department, or sell the debt to a third-party collection agency.
Second Mortgage Foreclosure
Home loan lenders have the right to foreclose if you fail to make your payments for any mortgage. The fact a second mortgage is in a junior position to the first mortgage does not prevent the second mortgage lender from foreclosing.
Try to work out some sort of a payment arrangement with your lender for the second mortgage to avoid a foreclosure. The foreclosure process varies from state to state, but generally takes from two to 18 months depending on the terms of your loan and your state of residence. However, a good rule of thumb is the bank can proceed with the foreclosure process if mortgage payments are not received within 150 days. See the Bills.com Foreclosure Rules resource to learn the specific rules for your state.
If a foreclosure occurs, the second mortgage is paid after the first mortgage is repaid in full. If the sale price is less than the value of the mortgages held against it, then in most states you will owe a deficiency balance. The good news is a deficiency balance (if it exists and if your lenders pursue collections) is an unsecured debt you can enroll in a debt settlement program. However, some states outlaw the collection of mortgage deficiency balances. See the Bills.com Anti-Deficiency resource to learn the rules for your state.
Here is the good news: Lenders don’t like to foreclose on mortgages. Foreclosures are costly, so lenders foreclose only as a way of limiting losses on a defaulted loan. If homeowners get behind on payments, lenders will most likely work with them to bring the loan current.
To do so, however, communicate with the lender and be honest about your financial situation. The lender’s willingness to help with current problems will depend heavily on past payment records. If you have made consistent, timely payments and had no serious defaults, the lender will be more receptive than if the person has a record of unexplained late payments. If you are falling behind in payments or who know you are likely to do so soon, contact your lender right away about meeting to discuss alternative payment arrangements.
Loan Workout Plan
An agreement between borrower and lender to prevent the loss of a home is called a loan workout plan. It will have specific deadlines that must be met to avoid foreclosure. Therefore, it must be based on what the borrower really can do to get the loan up to date again. The nature of the plan will depend on the seriousness of the default, prospects for obtaining funds to cure the default, whether the financial problems are short-term or long-term, and the current value of the property.
If the default is caused by a temporary condition likely to end within 60 days, the lender may consider granting temporary indulgence. Those who have suffered a temporary loss of income but can demonstrate that the income has returned to its previous level may be able to structure a repayment plan. This plan requires normal mortgage payments to be made as scheduled along with an additional amount that will end the delinquency in no more than 12 to 24 months. In some cases, the additional amount may be a lump-sum due at a specific date in the future. Repayment plans are probably the most frequently used type of agreement.
Foreclosure, Generally
Foreclosure is a serious situation that has serious repercussions. If you can, you want to avoid a foreclosure as much at all costs. Bills.com is here to help. We also offer helpful guides, foreclosure FAQs, glossary terms, and other helpful tools to help you keep your home and avoid a bank repossession.
You can find more in depth information about foreclosures on our Bills.com foreclosure information page. See also Home Affordable Foreclosure Alternatives Program.
I hope this information helps you Find. Learn & Save.
Best,
Bill
Comments (267)
Goodyear, AZ | March 27, 2013
March 27, 2013
You asked how to rid yourself of the loan and lien. You have two options:
- Negotiate a settlement for less than the balance due. You have some leverage now that Bank of America has written-off the loan and has moved it out of its current accounts ledger.
- Talk to a bankruptcy lawyer to learn if filing a chapter 13 would strip the lien on what I assume is a junior mortgage/deed of trust.
Traverse City, MI | January 20, 2013
January 23, 2013
Susanna, consult with your bankruptcy lawyer immediately, and ask him or her to negotiate a settlement with Chase on the junior mortgage. The good news here is the Chase representative indicated a willingness on the part of the lender to negotiate a settlement. By all means, take them up on the offer and have your lawyer start talking to Chase now.
Traverse City, MI | January 20, 2013
Royal Oak, MI | January 08, 2013
January 11, 2013
Lutz, FL | October 01, 2012
October 02, 2012
August 18, 2012
August 20, 2012
Manchester, NJ | August 09, 2012
August 13, 2012
Fort Myers, FL | February 15, 2012
February 15, 2012
Gilroy, CA | February 13, 2012
February 13, 2012
"Reasonable" varies according to the situation. I suspect there are more relevant facts to your case than what you shared. Accordingly, I urge you to consult with a lawyer in your state who has experience negotiating with mortgage companies.
Bedford Hills, NY | July 27, 2012
July 27, 2012
You asked why anyone would include a mortgage in their bankruptcy. First, to comply with the law the debtor must include all claims against them, including mortgages. Second, a property owner may not lose their property in a bankruptcy. Depending on the debtor's circumstances and the exemptions rules in the debtor's state, the debtor may be able to protect some or all of their property's equity with an exemption. In many circumstances, a debtor will be able to retain ownership of their property if they continue to make their house payments. One benefit bankruptcy has for homeowners with mortgages is the bankruptcy discharge will remove the homeowner's personal liability for the loan. A first mortgage's lien remains, so the lender retains the ability to foreclose if the borrower defaults on their monthly payments.
As implied in your message, financial circumstances vary by person. A debtor considering bankruptcy should consult with a lawyer who has bankruptcy experience to discuss all of their options and the costs of each.
Freehold, NJ | February 03, 2012
February 04, 2012
Sterling, VA | February 11, 2012
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Any suggestions as to how to obtain a Release of Lien or a Release Certificate so I can refi and get away from Bank of America?
Thank you for this type of forum! as most of us can't afford to hire and attorney and need to do this leg work ourselves.